Government moves to put the brakes on B.C.’s urban housing costs are taking hold and are about to produce the biggest drop in residential construction since 2009, Central 1 Credit Union says in its latest forecast.

The drop in housing investment is projected to be nearly as large as the world-wide recession of 2009, but will not signal a recession in B.C. because of strength in other construction sectors, says B.C. Economic Outlook 2019-2021, a forecast by the organization representing credit unions in B.C. and Ontario.

Increasing population, new capital investment in public works and the LNG Canada liquefied natural gas project in northern B.C. are expected to keep unemployment low as housing construction slows, Central 1 forecasts.

“B.C.’s economy will slow over the next three years as the policy-induced housing market downturn weighs temporarily on growth,” the report says.

“The recent slump in housing demand and prices will trigger a sharp contraction in housing construction and the most pronounced drop in broader residential investment since 2009. Growth will trend in a range of 2.0 to 2.5 per cent over the next years and accelerate to 2.8 per cent in 2021.”

The federal government’s addition of a “stress test” for bank mortgages in 2018 has required borrowers to qualify their ability to pay if interest rates increase, after a long period of low rates led to personal debt rates rising. B.C. has focused on increased taxes for foreign buyers and second homes in urban areas that have low rental vacancy rates and high purchase prices.

“Retrenchment has been significant in larger urban markets, which will curtail new home activity in 2019,” the report states. “Home sales have fallen to a multi-year low pace.”

Central 1 expects that B.C. exports will be a drag on growth, with the continued trade dispute between the U.S. and China and a general trend to trade protectionism internationally.

Retail sales rose “a mere two per cent last year following a 9.3 per cent increase in 2017 and 6.6 per cent gain in 2016, despite support from rising wages, solid labour market and population growth,” Central 1 says.